The 2003 tax change in Spain benefited investors by eliminating taxes on fund switches. Prior to 2003, investors faced an 18% tax on all financial products and taxes on fund switches. After 2003, there is no taxation on fund switches. This led to increased fund switches, rising from 20 billion euros in 2003 to over 61 billion euros in 2006. Spanish advisors note the tax change made funds a more dynamic product, increased transparency, and opened more investment opportunities for investors. It also led investors to become more active in their decisions and changed investor profiles from conservative to more moderate. Overall, the tax change had a very positive impact on the Spanish funds market.

1. Rafael Febres-Cordero Managing Director Southern Europe Fidelity Investments International Stockholm, May 3, 2007 Small change – big win for the investor: How Spain benefitted from a tax change

6. We find three investor profiles with different motivations for investing Spanish advisors think the Spanish investor has evolved  from a conservative and traditional profile towards a more moderate one, which predominates nowadays. End investor profile: Three different profiles Conservative Moderate Aggressive Modest return in exchange for security  aversion to risk Getting an attractive return on his money  greater openness to risk Pure return and tax advantages: Investment as a game  risk

7. Selection criteria: Why investment funds? The advantages of investment funds “ Perhaps because the stock market scares you.” (FG 1) “ I look at the security, rate of return, that I can turn it into cash at a given moment. The peace of mind of getting out when you want is good.” (FG1); “ When you invest, you do so looking long-term, without risk, something safe. For a variable rate, you really have to be on top of it and it is riskier.” (FG 2) Investment funds seem to be perceived as a product, that on a rational level, satisfies profitability expectations and, on an emotional level, provides security and trust  Balance between return on investment and risk

8. Tools that allow diversification “ You can invest in Spanish, European, South American markets... And then vectorial also. Right now there are 14,000 funds that you can invest in.” (FG 2) Tax treatment “ In the past investment funds did not exist, you had to sell then in order to be able to save them and pay taxes on the earnings and now you can transfer them, you can change from A to B, from B to C, from C to D and you are moving the money in sectors without paying the IRS as long as you don’t return them; the money was captive.” (PI2) Selection criteria: Why investment funds? In this sense, the first advantage of the fund is that of being an easy and safe investment

9. When a product disappoints “ (…) the fund is not doing what was expected, (…) is not meeting their objectives.” (PI3) When the investor’s circumstances change “ A change in his risk profile, that at a given moment, the client does not want to assume the risk of a variable rate or that the markets start to go down, and then a change in the type of product takes place.” (PI5) Selection criteria: Why changing funds?

10. The reform of 2003 had a very positive impact on investment funds as a product Prior to January 2003 Since January 2003 Static product, little management, money was held captive Product is a dynamic and flexible tool that can be moved with freedom A way to save while accumulating profitability until expiry date An authentic investment instrument that allows to optimize the profitability of savings A product with relative appeal vs direct investment into stocks An investment vehicle that wins particular relevance vs. other investment products (shares, pension plans, etc.) Advisor feedback: The effect of the tax change

11. It raises the appeal of Investment Funds “ Before the client was somewhat reticent to investing into funds, some years ago, because they did not understand some products well, they saw that they could not move them, that they had to really get the specific fund right to be right, they didn’t see it as being very easy and the new law has given more freedom, transparency, convenience, more peace of mind and simpler modus operandi ” (PI 2) Advisor feedback: The effect of the tax change

12. Positive impact on the market “ There was a time when the funds market was at a standstill, and it has picked up with more happiness because the client sees the change, the movement, the transferring between entities as being easier ” (PI 2) A very active market in terms of the offer and marketing, which has raised the level of demand of the industry and of the funds market  very positive impact that has allowed the Spanish funds market to become more modern and mature, making itself more attractive for investing in Greater transparency and information on the funds market Relevance and prominence of international competitors Need of differentiation and diversification  the pressure for offering good quality Advisor feedback: The effect of the tax change

13. A change at investor level “ I have opened the profiles up a bit. Before there was a very conservative profile and risk-tolerant profile, which were very far apart from each other ” (PI 2) “ The investor is more global now. He has changed a lot.” (PI 6) Access to greater investment opportunities “ That you can change from one fund to another without being fiscally penalized, this allows the client, if he wants, to be able to acquire other more adequate funds if the client wants, based on the moment, keeping the factors of profitability and security in mind.” (PI 7) Due to these factors the advisors value the importance and depth of this law Advisor feedback: The effect of the tax change

15. How informed do Europeans feel about financial preparation retirement? Investor feedback: The effect of the tax change 50% 49% 51% 47% 51% 32% 33% 34% 32% 7% 21% 24% 26% 23% 13% 6% 8% 4% 38% 16% 20% 19% 19% 37% 40% 35% 38% 5% 12% 5% 5% 7% 17% 17% 22% 21% 57% 70% 75% 73% 74% 45% 39% 42% 36% 57% 43% 29% 25% 25% 26% 55% 57% 60% Sweden Netherlands Germany Austria Switzerland France Italy Spain Portugal Total well informed Total Not informed Not informed at all Not really informed Fairly well informed Very well informed

16. Once the law is explained a very positive assessment is made (mainly among younger investors) It allows changing the risk profile to what the investor is willing to assume at each moment  availability and liquidity of the money A convenient and safe way of investing It opens up the possibilities of changing investment decisions based on the moment  taking advantage of the opportunities in terms of sectors to invest in, geographic areas, etc, and getting better returns It offers the possibility of changing products and dealers in the case of dissatisfactory results  greater freedom of decisions An economic benefit regarding the situation prior to January 2003  the fiscal toll is not an obstacle now for changing Investor feedback: The effect of the tax change

17. Improvement in the investment opportunities and profitability “ If you have profits and in the next you have losses, you can make up for one with the other. It allows greater agility in the market” ” Knowing that you can do it, you change. If you don’t have to pay when changing, you change. If not, you don’t move it” “ They make you want to invest, they are facilities. ” (FG 1) Investor feedback: The effect of the tax change It is a convenient way to optimize investments and the investor stops being a prisoner of the product and of a particular manager  greater freedom in decision-making, movement and a motivation to invest

18. Consequences for the economy “ As a country, Spain, where in the end the wealth is growing, that the people are motivated to invest in the stock exchange, that until recently we were a country that did not understand much about the entire subject of investments and perhaps now people are becoming more aware of everything, of what investment funds are, the stock market” (PI 4) Investor feedback: The effect of the tax change

20. Rafael Febres-Cordero Managing Director Southern Europe Fidelity Investments International Small change – big win for the investor: How Spain benefitted from a tax change